Defense spending cuts lowering job gains

May 2, 2013
|

F-16 fighter aircrafts wait to refuel in flight on April 18, 2013 during the Frisian Flag 2013 international flight exercise over Eindhoven. Participants from The Netherlands, Germany, France, Belgium and Sweden are practicing flights in Leeuwarden for both air defense and air support to ground troops until April 26. AFP PHOTO / ANP / KOEN VERHEIJDEN - netherlands out -Koen Verheijden/AFP/Getty Images ORIG FILE ID: 519018208 / KOEN VERHEIJDEN AFP/Getty Images

by Paul Davidson, USA TODAY

by Paul Davidson, USA TODAY

Defense spending cuts are starting to take a toll on the economy, further slowing a sluggish jobs recovery.

The effects were modest in April but will intensify in coming months.

Many defense contractors "are telling us that this recently began to rock the supply chain," says Marion Blakey, CEO of the Aerospace Industries Association (AIA).

Across-the-board spending cuts in the federal budget took effect March 1 as part of a deficit-reduction package. About half the $44 billion in cuts expected to occur by Sept. 30 will come out of defense spending.

Defense and aerospace contractors announced about 2,000 layoffs in April as a result of the budget cuts, outplacement firm Challenger Gray & Christmas said Thursday. That's double the number of such layoffs announced in March.

The announced layoffs are just a portion of total defense job cuts of up to 10,000 in April, says economist Mark Zandi of Moody's Analytics. Overall, economists estimate the government on Friday will report 148,000 job gains last month.

With the U.S. economy showing signs of weakening, in part because of Europe's recession, the European Central Bank on Thursday cut a key interest rate to 0.5% to spur eurozone growth.

Besides layoffs, hundreds of defense contractors are not filling open positions and putting off new hiring, says Loren Thompson, a defense analyst with the Lexington Institute. Defense cuts likely will pare job gains by 25,000 to 30,000 a month this year, says Stephen Fuller, an economist at George Mason University, who has done studies for the AIA.

Small to midsize firms are seeing contracts for information technology and other services ended. Others are receiving fewer requests for proposals and orders from large contractors.

Level-3 Communication Systems, which makes technology for unmanned drones and satellites, said last month it has laid off 190 staffers in Salt Lake City, or about 4.2% of its workforce. National Technical Systems, a provider of testing and engineering services, said this week it's cutting a few dozen jobs.

Some small firms could shut down while others switch to new sectors, leaving supply shortages when budgets are replenished, Blakey says.